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What is the payback period for this investment proposal

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Question - Isagani Ltd. is considering upgrading its computer hardware and software. The cost of this upgrade will be $625,000, and the upgrade will qualify for the 30% CCA rate. The equipment qualifies for the Accelerated Investment Incentive with 1.5 times CCA allowed in the year of acquisition. With this upgrade, the company expects to realize before-tax savings in personnel and other costs as follows: Year 1 - $180,000; Year 2 - $235,000; Year 3 - $250,000; Year 4 - $150,000. There is no salvage value for this investment. The company's income tax rate is 26% and its cost of capital is 12%. What is the payback period for this investment proposal?

a) 1.5 years

b) 2.0 years

c) 2.4 years

d) 3.1 years

Reference no: EM132978558

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